News from 1930: Closing of Bank of United States

The closing of the Bank of the United States could be considered the event during the Great Depression that was most akin for the U.S. to the collapse of Lehman Brothers last year. The event occurred on 12 December 1930 – so 79 years ago yesterday. The blog News from 1930 details the events from that day as reported in the Wall Street Journal.

[As previously mentioned, the Bank of U.S. failure is commonly used to mark the first major banking crisis of the Depression.]

Bank of United States closed and taken over by NY State Banking Dept.; had about $202M of deposits, 400,000 depositors, and 23,000 stockholders. Despite size, “highest banking authorities” assure it is “isolated local situation,” closing is likely to eliminate recent uncertainty. Merger with stronger banks had been attempted for weeks, ultimately abandoned at 4 AM Thursday; a run on the bank developed, leading to closing. NY Clearing House (bank assoc.) admits Manufactures and Public (two banks in the aborted merger), announces it will loan depositors 50% of net balances at 5%.

Bank of U.S. was started in 1913 with $100,000 of capital, grew rapidly after the war. Rep. McFadden notes bank was incorporated in NY State, and is not connected with the US govt., though it is a Fed. Reserve member bank.

Editorial: Closing of Bank of U.S. was no surprise; bankers have been working for weeks to avoid failure. When failure became inevitable, leading banking interests worked strenuously over the past several days to smooth out the situation; the Clearing House assoc. of banks established a fund to lend depositors up to 50% of their claims, giving them substantial immediate relief. This action indicates the banks believe problem is isolated; otherwise they wouldn’t commit such a large sum to help depositors in just one bank. Bank depositors in general should remember this is the first major bank failure since the 1929 market panic and not jump to false conclusions about other banks; in fact, this event may help by relieving the state of tension that has hung over the market for the past few weeks.

If you read the accounts from this site, you do get the sense that no one was prepared for what was to come and that there was a lot of happy talk about the worst being over. The difference between then and now has been the understanding that the system would collapse if bank runs on institutions like Lehman and Washington Mutual were allowed to infect the system further. But, of course I am getting ahead of myself as it is far too early to say that panic and depressionary contagion have been beaten back permanently. These accounts are testament to that.

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty five years of business experience. He has also been a regular economic and financial commentator in print and on television for the past decade. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College.